Corporations Are Only Accountable to Shareholders. They Do Not Have Social Responsibilities.

Topics: Business ethics, Corporate social responsibility, Ethics Pages: 9 (2728 words) Published: August 18, 2010
Corporations are only accountable to shareholders. They do not have social responsibilities.

Corporations are only accountable to shareholders. They do not have social responsibilities. Before commencement on making my stand in this topic, a clear definition of the aspects of this topic is essential. Firstly, a corporation can be define as a legal entity or structure created under authority of the laws of a state, consisting of a person or group of persons who become shareholders (All business 2010). Also, a corporation has the right to sue and be sued, own and sell property, and enters into contracts using its name (Velasquez 2006). The next definition is to define shareholders. ‘The simplest definition of a shareholder seems straightforward enough: an individual, institution, firm, or other entity that owns shares in a company’ (Mallin 2007, p. 49). Lastly, we define social responsibilities. The corporate social responsibility (CSR) refers to the general belief held by growing numbers of citizens that modern business have responsibilities to society that extend beyond their obligations to the shareholders or investors in the firm (Wood 2007, p. 122). It implies that negative business impacts on people and society should be acknowledged and corrected if at all possible (Post, Lawrence & Weber 1999).

Rephrasing the topic, it basically means that a corporation is only answerable to its shareholders and they are not responsible for all the actions they take in order to achieve the corporation’s goal. I do not agree to this statement. Corporations not only own their duties to the shareholders, a corporation also should be answerable to others like the stakeholders for example. Although shareholder’s interests are the top of the corporate agenda, stakeholder interests should not be ignored as well (Mallin 2007). In short, corporations should have social responsibilities towards their actions. Following up this essay, I will discuss further on the social responsibilities a corporation should adopt and backing up my points using different theories and real life examples.

Milton Friedman theory
We all know that when u set up a business, the main objective is to make a profit. This is beyond debate and is accepted as a matter of fact. This view is closely closing link to the classical CSR theory of Nobel Prize –winning economist Milton Friedman in the 1970s. In his theory, Friedman has argued that the only social responsibility and purpose of a corporation is to maximize shareholder profits (Beauchamp & Bowie 2004).

One of Friedman main argument against CSR is that business executives do not have the rights to further social interests by spending shareholders’, customers’ or employees’ money (Graduate School of Business Course Notes 2010, Lecture 5). It simply means that ‘if corporations are required to engage in corporate philanthropy, eg. Making a donation to a charity, school or hospital, these acts will distort allocative efficiency, i.e. the profitability with which capital is employed’ (Fisher & Lovell 2009, p.311). Friedman also held another argument that ‘only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities’ (Friedman 1970, p. 2). Therefore, it is the business executives that should have the responsibilities to conduct the business in accordance with the desires of the owners of the business, the shareholders and to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom (Graduate School of Business Course Notes 2010, Lecture 5).

The topic of this essay is essentially supporting Friedman’s classical theory in CSR. As mentioned in the introduction, I do not agree to this theory. This classical view has invited much criticism on the grounds that this view justifies...
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